- Summary:
- The DAX index rose by 3% after the Federal Reserve and Angela Merkel saved the day. The Fed is buying corporate bonds as Merkel readies stimulus
The DAX index is up by more than 2.50% today, outperforming most of the European peers. The CAC 40 is up by 2% while FTSE MIB is up by 1.90%. The only better-performer is the FTSE 100, which has climbed by more than 2.60%. All companies in the DAX index are in the green.
Fed to the rescue
It is impossible to talk about the upbeat performance of the DAX and other German stocks without mentioning the Federal Reserve.
As you recall, we wrote about the underperformance of global benchmarks yesterday. This sharp decline was mostly because of a new wave of coronavirus pandemic in China.
In a surprise move, the Federal Reserve intervened and made a rather surprising announcement. The bank said that it will now start buying individual corporate bonds. This will be in addition to the bonds that it is buying indirectly through bond exchange traded funds. The bonds it will acquire will be for companies that have a credit rating of Baa3.
Analysts believe that the new move by the Fed, in addition to the vast quantitative easing program, will help to boost the economy.
German stocks gain on more stimulus
The DAX index also rose after it emerged that Angela Merkel’s government was planning additional stimulus package. According to Bloomberg, the government plans to raise a further $70 billion in debt to help cushion the economy.
This new raising will bring the total borrowing this year to more than 218 billion or 77% of the GDP. The new fundraising will be made public tomorrow after the cabinet signs off the supplementary budget.
The government believes that this debt is manageable. It cites the fact that it had previously reduced its debt to GDP ration from 80% to 60% in the wake of the last crisis. This stimulus will help German stocks in the DAX index.
Top movers in the DAX
The best-performing company in the DAX index is Heidelbergcement, whose shares rose by more than 5.30%. It was followed by Daimler, Bayer, and Deutsche Bank, whose shares rose by more than 4%. On the other hand, Muench. Rueckvers was the biggest laggard as its stock rose by 0.30%. It was followed by Volkswagen, Vonovia, and Beiersdorf.
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DAX Index technical outlook
On the daily chart, the DAX index is between the 61.8% and 78.2% Fibonacci retracement level. It is also above the 50-day and 100-day moving averages. The price is also in an upward trend as evidenced by the ascending trendline shown in black. This trend connects the lows on March 23, May 15, and June 15. Therefore, the price will likely continue rallying as bulls attempt to retest the previous high at €12,559.
On the flip side, a move below the 61.8% Fibonacci retracement level at €11,578 will invalidate this prediction.